Across industries, the coronavirus pandemic has wreaked financial havoc, especially for small and medium enterprises. The financial health of businesses has been affected tremendously. 

For this reason, small business owners can seek a personal loan as their working capital when they are not able to get a business loan in these trying times. To meet their requirements as a small business owner, some of them prefer to take a personal loan which has its pros and cons. 

What is a personal loan?

Personal loans in India are availed to meet personal expenses like a wedding, child’s education, any medical emergency, and so on. It doesn’t require any collateral or cumbersome paperwork, and you can avail up to Rs. 25 lakhs. You can also keep a check on the cash outflow and your financial health by calculating the amount through the personal loan EMI calculator, which is extremely convenient. 

In case of emergencies, a personal loan can also be availed to meet business requirements and expenses. Due to Covid-19, if your business has suffered and has been operating for less number of hours, you can use a personal loan to fill small gaps like paying the rent. If your business has completely been shut due to the lockdown, even then a personal loan can help you meet your expenses, tax obligations etc. 

Pros of availing a personal loan amidst lockdown:

• As compared to the business loans, qualifying for a personal loan is easier. 
• One of the benefits for small business owners is that there is no requirement to keep any asset as collateral while availing an unsecured personal loan.
• Monthly repayment of the loan makes it convenient and helps in budgeting.
• Not only personal, but business expenses can be taken care of with a personal loan.
• The process of availing a loan is seamless and hassle-free online. From loan application to approval and getting the funds, the process is incredibly swift.

Cons of availing a personal loan amidst lockdown:

• The borrowing limit of the loan will be lower as compared to business loans.
• The interest of the personal loan cannot be deducted as a business expense, unlike in a business loan.
• If you fail to repay the loan or fulfil any obligation, it will affect your credit score, making it difficult for you to take a personal loan in the future. 

Important things to think about before applying for a personal loan:

Comparison of the interest rates:

It’s best if you always make a comparison of the interest rates in the market provided by lenders and other financial institutions to make sure that you get the best and reasonable interest rate.

Consider all the costs:

While availing a personal loan, you should consider all the other expenses such as processing fee, late payment or prepayment fee to ensure the amount you will be spending.

Decide on the loan amount: 

This is one of the crucial factors before applying for a loan. It is wise to ensure that the loan amount matches your needs and that you can repay it later with ease because defaulting would lead to a bad credit score. 

Repayment of the loan:

Considering your ability to repay the loan before taking one is vital. You can use tools like the personal loan EMI calculator and keep track of the cash outflow that will happen and whether you are ready for it or not. 

Be careful of the tricking offers:

It is also advisable to not fall for the offers and plans that seem to be giving loans at low-interest rates but in reality, makes you spend more. 

The interest rates for personal loans are comparatively low and can help you save money while borrowing because the interest will be less. Taking a personal loan during the lockdown for small and medium businesses depend on the requirements. It is best to take into consideration both the pros and the cons mentioned above.